SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 30, 2002 Commission File Number 1 - 1361
TOOTSIE ROLL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 22 - 1318955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7401 South Cicero Avenue
Chicago, Illinois 60629
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (773) 838 - 3400
No Changes
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practible date.
Class Outstanding
Common Stock, $.69 4/9 par value 34,877,581
Class B Common Stock, $.69 4/9 par value 16,792,744
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
MARCH 30, 2002
I N D E X
Part I - Financial Information
Page No
Financial Statements:
Consolidated Statements of Financial Position 2
Consolidated Statements of Earnings, Comprehensive
Earnings and Retained Earnings 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II - Other Information
Other Information 7
Signatures 7
PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
ASSETS March 30, March 31, Dec. 31,
CURRENT ASSETS 2002 2001 2001
Cash & Cash Equiv. $ 75,319,441 $ 37,469,696 $106,531,923
Investments 65,417,563 71,449,570 68,629,416
Trade Accounts Receivable,
Less Allowances of
$1,981,000, $2,135,000 & $2,037,000 24,814,487 25,367,807 20,402,588
Other Receivables 2,906,535 3,916,467 3,329,423
Inventories, at Cost
(Last-in,First-out):
Finished Goods & Work in Process 32,164,446 34,903,998 24,769,785
Raw Material & Supplies 20,529,617 20,358,753 16,391,683
Prepaid Expenses 12,041,006 11,198,880 4,268,974
Deferred Income Taxes 1,772,000 1,351,000 1,772,000
Total Current Assets 234,965,095 206,016,171 246,095,792
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 8,353,604 8,327,400 8,353,823
Buildings 43,606,560 36,936,658 43,612,983
Machinery & Equipment 191,392,752 188,425,071 189,528,268
243,352,916 233,689,129 241,495,074
Less-Accumulated Depreciation 111,966,760 100,032,987 108,920,165
131,386,156 133,656,142 132,574,909
OTHER ASSETS
Goodwill, Net of Accumulated Amortization
of $17,799,000, $16,695,000 & $17,799,000 38,151,303 39,255,923 38,151,303
Trademarks, Net Of Accumulated Amortization
of $12,896,000, $11,166,000 & $12,896,000 79,348,109 81,062,225 79,348,109
Investments 85,976,810 69,789,315 71,130,695
Cash Surrender Value of Life Insurance and
Other Assets 53,065,363 45,687,338 51,375,232
256,541,585 235,794,801 240,005,339
Total Assets $622,892,836 $575,467,114 $618,676,040
(The accompanying notes are an integral part of these statements)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY March 30, March 31, Dec. 31,
CURRENT LIABILITIES 2002 2001 2001
Accounts Payable $ 12,227,396 $ 12,556,387 $ 9,223,256
Dividends Payable 3,865,639 3,678,711 3,535,583
Accrued Liabilities 31,742,461 29,486,740 34,294,920
Income Taxes Payable 16,501,249 16,800,203 10,792,138
Total Current Liabilities 64,336,745 62,522,041 57,845,897
NON-CURRENT LIABILITIES
Ind.Dev.Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 7,616,432 7,086,620 7,450,336
Deferred Compensation and Other Liabilities 21,100,371 18,169,139 20,627,044
Deferred Income Taxes 16,463,356 12,412,066 16,791,542
Total Non-Current Liabilities 52,680,159 45,167,825 52,368,922
SHAREHOLDERS' EQUITY
Common Stk., $.69-4/9 par value-
120,000,000 shares author.
34,877,581, 34,004,303 & 34,139,604
respectively, issued 24,220,342 23,613,898 23,707,856
Class B Common Stk., $.69-4/9 par value-
40,000,000 shares author.
16,792,744, 16,504,019 & 16,318,718
respectively, issued 11,661,531 11,461,027 11,332,347
Capital in Excess of Par Value 376,282,788 325,878,304 323,980,941
Retained Earnings 105,884,770 118,634,349 161,344,847
Accumulated Other Comprehensive Earnings (10,182,096) (9,818,927) (9,913,367)
Treasury Stock (at cost)-
54,636, 54,636 & 54,636, shares
respectively (1,991,403) (1,991,403) (1,991,403)
Total Shareholders' Equity 505,875,932 467,777,248 508,461,221
Total Liabilities and
Shareholders' Equity $622,892,836 $575,467,114 $618,676,040
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS (NOTE 1)
(UNAUDITED)
13 Weeks Ended
March 30, 2002 & March 31, 2001
Net Sales (Note 2) $ 78,990,799 $ 75,857,504
Cost of Goods Sold 43,159,892 39,663,550
Gross Margin 35,830,907 36,193,954
Selling, Marketing and Administrative Expense 17,496,296 17,438,627
Amortization of Intangible Assets -- 944,579
Earnings from Operations 18,334,611 17,810,748
Other Income, Net 1,163,302 1,267,118
Earnings before Income Taxes 19,497,913 19,077,866
Provision for Income Taxes 6,726,000 6,693,000
Net Earnings (Note 5) 12,771,913 12,384,866
Other Comprehensive Income, before Tax:
Foreign Currency Translation Adjustments 291,582 387,451
Unrealized Gains on Securities:
Unrealized holding gains (losses) arising during period $ (133,000) $(407,000)
Less: Reclassification adjustment for gains
Realized in earnings 48,689 (84,311) 17,411 (389,589)
Unrealized Gains on Derivatives:
Unrealized holding gains (losses) arising during period (1,010,000) 31,000
Less: Reclassification adjustment for gains
Realized in earnings 205,000 (805,000) 333,000 364,000
Other comprehensive income (loss), before tax (597,729) 361,862
Income tax benefit related to items of other
Comprehensive Income 329,000 10,000
Other comprehensive income (loss), net of tax (268,729) 371,862
Comprehensive Earnings $ 12,503,184 $ 12,756,728
Retained Earnings at Beginning of Period $161,344,847 $180,123,036
Net Earnings 12,771,913 12,384,866
Cash Dividends (3,508,420) (3,429,348)
Stock Dividends - 3% (64,723,570) (70,444,205)
Retained Earnings at End of Period $105,884,770 $118,634,349
Net Earnings Per Share (Note 3) $.25 $ .24
Dividends Per Share * $.07 $ .07
Average Number of Shares Outstanding
(Notes 3 & 4) 51,758,189 51,950,689
*Does not include 3% Stock Dividend to Shareholders of Record on 3/05/02 and 3/06/01.
(The accompanying notes are an integral part of the statements)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
13 Weeks Ended
March 30, 2002 & March 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $12,771,913 $12,384,866
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 3,046,595 3,973,400
(Increase) decrease in assets:
Accounts receivable (4,356,534) (1,730,044)
Other receivables (83,848) (2,686,766)
Inventories (11,450,511) (13,255,891)
Prepaid expenses and other assets (9,515,738) (9,915,537)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 423,977 (1,624,799)
Income taxes payable and deferred 5,397,786 6,438,842
Postretirement health care and life
insurance benefits 166,096 130,526
Deferred compensation and other liabilities 473,327 (1,252,199)
Other 15,252 209,723
Net cash used in operating activities (3,111,685) (7,327,879)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,708,118) (5,566,533)
Purchase of held to maturity securities (80,841,815) (33,882,348)
Maturity of held to maturity securities 69,839,453 26,664,149
Purchase of available for sale securities (9,775,739) (23,129,571)
Sale and maturity of available for
sale securities 9,143,839 23,262,233
Net cash used in investing activities (13,342,380) (12,652,070)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid in cash (3,530,805) (3,432,497)
Shares repurchased and retired (11,227,612) --
Net cash used in financing activities (14,758,417) (3,432,497)
Decrease in cash and cash equivalents (31,212,482) (23,412,446)
Cash and cash equivalents-beginning of year 106,531,923 60,882,142
Cash and cash equivalents end of quarter $ 75,319,441 $37,469,696
Supplemental cash flow information:
Income taxes paid $ 964,000 $ 241,000
Interest paid $ 135,000 $ 209,000
(The accompanying notes are an integral part of the statements)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 2002
(UNAUDITED)
Note 1 - Foregoing data has been prepared from the unaudited
financial records of the Company and in the opinion of
Management all adjustments necessary for a fair statement
of the results for the interim period have been reflected.
All adjustments were of a normal and recurring nature.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and
the related notes included in the Company's 2001 Annual
Report on Form 10-K.
Note 2 - The Company's unshipped orders amounted to $15,700,000 and
$17,200,000 at March 30, 2002 and March 31, 2001, respectively.
Note 3 - Average shares outstanding for the period ended March 30, 2002
reflects stock repurchases of 285,000 shares for $11,227,612
and a 3% stock dividend distributed on April 17, 2002. Average
shares outstanding for the period ended March 31, 2001 reflects
a 3% stock dividend distributed on April 18, 2001.
Note 4 - Results of operations for the period ended March 30, 2002
are not necessarily indicative of results to be expected
for the year to end December 31, 2002 because of the
seasonal nature of the Company's operations. Historically,
the Third Quarter has been the Company's largest sales
quarter due to Halloween sales.
NOTE 5 - Effective January 1, 2002, the Company adopted EITF 00-14,
"Accounting for Certain Sales Incentives" and EITF 00-25,
"Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products." These state-
ments required that the Company reclassify its cooperative
advertising and certain sales incentives from selling,
marketing and and administrative expense to a reduction of
net sales. This reclassification has been made for all
periods presented. The effect of the adoption of these issues
was to reduce both net sales and operating expenses in the
First Quarter of 2002 and 2001 by $6,258,000 and $6,764,000,
respectively. The adoption of such requirements did not effect
the comparative quarterly earnings.
NOTE 6 - The Company adopted SFAS 142, "Goodwill and Other Intangible
Assets," on January 1, 2002. As a result of its adoption, the
Company has reclassified approximately $79.3 million from
intangible assets to trademarks. The remaining amounts relate
to goodwill. All trademarks have been assessed by management
to have indefinite lives because they are expected to generate
cash flows indefinitely. Thus, the Company has ceased amorti-
zation expense on all trademarks and goodwill as of January 1,
2002, resulting in increased reported net income after tax by
approximately $715,000 for the quarter ending March 30, 2002.
The amortization expense and net income (including any tax
effects) of the Company for the 13 weeks ended March 30, 2002
and March 31, 2001, respectively, are as follows:
13 Weeks Ended
March 30, 2002 & March 31,2001
Reported net income $12,772 $12,385
Add back: goodwill amortization 0 369
Add back: trademark amortization 0 576
Less: Tax effect 0 230
Adjusted net income $12,772 $13,100
Reported basic earnings per share $ .25 $.24
Goodwill amortization - .00
Trademark amortization - .01
Adjusted basic earnings per share $ .25 $.25
The Company has identified its reporting units related to good-
will and completed step one of the goodwill impairment test
during the first quarter which required that management compare
the fair value of the reporting unit with its carrying value.
The reporting units were not considered to be impaired. The
Company also completed its impairment test of the indefinite
lived trademarks which required management to compare the fair
value of the trademarks to the carrying value. The trademarks
were not considered to be impaired.
The impairment tests performed require that the Company deter-
mine the fair market value of its trademarks and the fair market
value of its reporting units for comparison to the carrying value
of such net assets to assess whether an impairment exists. The
methodologies used to estimate fair market value involve the use
of estimates and assumptions, including projected cash flows,
royalty rates and discount rates.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management's discussion of the Company's operating results and
analysis of factors which have affected the accompanying Statement of Earnings.
This discussion, the information contained in the preceding notes to the finan-
cial statements and the information contained in "Quantitative and Qualitative
Disclosures About Market Risk," contain certain forward-looking statements that
are based largely on the Company's current expectations. Forward-looking
statements are subject to certain risks, trends and uncertainties that could
cause actual results and achievements to differ materially from those expressed
in the forward-looking statements. Such risks, trends and uncertainties, which
in some instances are beyond the Company's control, include changes in demand
and consumer preferences; raw material prices; competition; the effect of
acquisitions on the Company's results of operations and financial condition;
the Company's reliance on third-party vendors for various goods and services;
and changes in the confectionary environment including action taken by major
retailers and customer accounts. The words "believe," "expect," "anticipate,"
"estimate," "intend" and similar expressions generally identify forward-looking
statements. Readers are cautioned not to place undue reliance on such forward-
looking statements, which are as of the date of this filing.
NET SALES:
First Quarter, 2002
First Quarter vs.
2002 2001 First Quarter, 2001
$78,990,799 $75,857,504 +4.1%
First Quarter 2002 net sales of $78,991,000, were up 4.1% from First Quarter
2001 net sales of $75,858,000. Effective January 1, 2002, the Company adopted
the reporting requirements of the Emerging Issues Task Force of the Financial
Accounting Standards Board (FASB) which requires that certain consumer and trade
promotion expenses, including off invoice allowances and marketing performance
fund payments, be recorded as a reduction of net sales and not as a component of
selling, marketing and administrative expenses. The effect of the above was to
reduce net sales and operating expenses in the First Quarter 2002 and 2001 by
$6,258,000 and $6,764,000, respectively. The adoption of such requirements did
not effect the Company's comparative quarterly earnings or financial position.
Sales for the First Quarter 2002 rose as a result of effective marketing and
promotional programs, as well as product line extenstions and new products.
First Quarter 2002 net sales of $78,991,000 were down from Fourth Quarter 2001
net sales of $87,454,000. This is not considered unusual as the First Quarter
of the year is historically the Company's lowest sales quarter.
COST OF SALES:
Cost of Sales as a
First Quarter Percentage of Net Sales
2002 2001 1st Qtr. 2002 1st Qtr. 2001
$43,159,892 $39,663,550 54.6% 52.3%
Cost of sales as a percentage of net sales increased from 52.3% for First
Quarter 2001 to 54.6% for First Quarter 2002. This increase reflects higher
ingredient costs and the effects of changes in the product mix and related
cost of goods sold of such products.
NET EARNINGS:
First Quarter, 2002
First Quarter vs.
2002 2001 First Quarter, 2001
$12,771,913 $12,384,866 3.1%
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangibles", which changed the financial accounting and reporting for acquired
goodwill and intangibles. SFAS 142 specifies that goodwill and indefinite-lived
intangibles will not be amortized but rather will be tested for impairment. The
Company has completed its impairment tests under the provisions of SFAS No. 142
for its indefinite-lived trademarks and goodwill and has concluded that neither
is impaired. The adoption of SFAS No. 142 had the effect of eliminating
$945,000 of amortization expense relating to the Company's acquired goodwill and
indefinite-lived trademarks during the First Quarter of 2002.
First Quarter earnings from operations were $18,335,000 and $17,811,000 in 2002
and 2001, respectively. However, after adjusting the prior year's first
quarter's operating earnings for the effects of SFAS 142, First Quarter 2002
and 2001 operating earnings were $18,335,000 and $18,756,000, respectively. The
decrease in adjusted operating earnings pricipally results from higher ingred-
ient costs and the effects of sales mix, as discussed above, and increased
customer deductions.
First Quarter 2002 net earnings were $12,772,000 compared to First Quarter 2001
net earnings of $12,385,000. First Quarter 2002 earnings per share were $0.25,
an increase of $.01 or 4.2% from First Quarter 2001 earnings per share of $.24.
As discussed above, the adoption of SFAS 142 had the effect of increasing re-
ported net earnings by approximately $715,000 or $.01 per share in the First
Quarter 2002. First Quarter 2002 net earnings were adversely affected by lower
investment income.
The consolidated effective income tax rate favorably decreased from 35.1% in the
First Quarter of 2001 to 34.5% in the First Quarter of 2002. This improvement
generally reflects a reduction in state income taxes.
First Quarter 2002 net earnings were $12,772,000 compared to Fourth Quarter
2001 net earnings of $12,390,000. Fourth Quarter 2001 earnings included a
charge of $.02 per share relating to the closing and consolidation of a small
manufacturing plant.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities)
is 3.7 to 1 as of the end of the First Quarter 2002 as compared to 3.3 to 1
as of the First Quarter 2001 and 4.3 to 1 as of the Fourth Quarter 2001. Net
working capital was $170,628,000 as of the end of the First Quarter 2002 as
compared to $143,494,000 as of the First Quarter 2001. Net working capital
was $188,250,000 at the end of the Fourth Quarter 2001. Net cash used in
operating activities was $3,112,000 for the quarter ended March 30, 2002 and
$8,328,000 for the quarter ended March 31, 2001. The change primarily reflects
increased accounts receivable levels at March 30, 2002, changes in other
receivables, inventories, accounts payable and accrued liablities, and a change
in the timing of the funding of certain medical benefit costs. Capital
expenditures for 2002 are anticipated to be generally in line with historical
annualized spending and are to be funded from the Company's cash flow from
operations and internal sources. First Quarter 2001 capital expenditures
relate to a new distribution center and additional production capacity.
Debt securities that matured during the quarters ended March 30, 2002 and March
31, 2001 were generally replaced with debt securities of similar maturities.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK:
The Company is exposed to various market risks, including fluctuations in sugar,
corn syrup, edible oils, cocoa and packaging costs. The Company also invests
in securities with maturities of up to three years, the majority of which are
held to maturity, which limits the Company's exposure to interest rate fluctua-
tions. There has been no material change in the Company's market risks that
would significantly affect the disclosures made in the Form 10-K for the year
ended December 31, 2001.
PART II - OTHER INFORMATION
TOOTSIE ROLL INDUSTRIES, INC
AND SUBSIDIARIES
Form 8-K was not required to be filed during the First
Quarter of 2002.
Sales of unregistered Securities - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
TOOTSIE ROLL INDUSTRIES, INC.
Date: May 10, 2002 BY:
Melvin J. Gordon
Chairman of the Board
BY:
G. Howard Ember
Vice President - Finance